Toyota North American CEO: We’re betting big on fuel cell cars

FORTUNE -- What's the future of the automobile? For all the attention Tesla and its CEO Elon Musk have received of late, the electric car is the logical guess.

Not at Toyota.

Hybrid or alternative fuel vehicles made up 16% of Toyota’s (tm) total sales last year – 10% of that number was from electric vehicles. That sector “will grow over time, as we see improvement in batteries,” Jim Lentz, CEO of Toyota North America told the audience at Fortune's Brainstorm Green conference on Tuesday. “But we’re really excited about this concept of fuel cell vehicles.”

Why? Because “it’s an on-demand electric vehicle,” Lentz said. “Rather than having a large heavy battery that takes a while to charge, you basically use hydrogen to produce electricity and water vapor.” Another factor is that prices of batteries used in electric vehicles aren’t dropping dramatically enough to offer consumers a long-range vehicle at a reasonable price. “It’ll happen some day, but I can’t tell you when that is,” Lentz says. “The long term play is going to be fuel cell.”

Lentz was quick to reel off the benefits of fuel cell vehicles: their carbon footprint is 50% better than gasoline, and their fuel costs will be low – about $30 for a 4-passenger sedan to travel 300 miles.

But for all the pros there’s a major con: there’s no place to fill up a hydrogen car, and it’s expensive to build hydrogen stations; they cost about $2 million a piece.

“California has only nine or 10 [hydrogen] stations, and there are only 180 in the world,” said moderator Brian Dumaine, senior editor at Fortune. “Where are you going to fill up a hydrogen car in California?”

Lentz said that Toyota has been working with University of California at Irvine to determine the optimal location of stations and how many stations the state actually needs to satisfy about 10,000 fuel cell vehicles. “That number is 68,” he said. Thanks to a $200 million investment by the state -- Toyota has invested $7 million of its own money was well -- California will have 30 stations by next year. “We’re not that far away in California of having that initial hydrogen highway,” Lentz said.

And then there’s the question of price? Toyota is known for its affordability. Will a fuel cell car fit into that mold?

Lentz told the Brainstorm Green audience that Toyota has about 100 fuel cell vehicles on the road already – each worth about $1 million. When the company introduces its fuel cell car to the general public next year, the cost will be about 5% of that – or $50,000, according to Lentz.

There's no doubt Lentz is enthusiastic about his company’s fuel cell future, but he said he knows other people might not feel the same way – yet. “If you look at hybrids, it took 15 years from when we first introduced it to go to a marketplace of over 500,00,” he said. “I think you can assume a similar acceptance rate of fuel cells down the road.”